Macro Final Exam

Sumit deposits $1,500 cash into his checking account. The reserve requirement ratio is 25%. What is the change in his bank's excess reserves?

$1,125

Based on the table, M1 for June 2010 was:

$1,737.4 billion

Which one of the following will cause the supply of loanable funds curve to shift leftward?

an increase in the government deficit

A lower interest rate increases consumption, investment, and __________, which ___________ aggregate demand.

exports; increases

Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price:

falls to $875.

Which of the following is NOT a policy tool of the Federal Reserve?

fiscal policy

Assume the reserve requirement ratio is 10% and all banks are fully loaned up. If a new deposit of $10,000 is made into Bank X, with this deposit Bank X can make new loans of:

$9,000

What is the yield on a bond sold for $1,850 and paying $25.50 in interest annually?

1.38%

If the reserve requirement ratio is 20%, the money multiplier is:

5

If government spending increases, shifting aggregate demand from _____ to _____, aggregate output will increase from _____ to _____.

AD0; AD1; Q0; Qf

One strength of the use of discretionary fiscal policy is the timing lags.

False

The _____ is the central bank of the United States.

Federal Reserve System

Which of the following measures is an example of an expansionary fiscal policy?

Increasing unemployment compensation

Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank. Based on that information, which of these is true?

M1 went down by $5,000, but M2 was unchanged.

If households decide to save a larger portion of their income because they fear job loss due to a recession, the loanable funds supply curve will shift from _____ to _____, and the new equilibrium will be at point _____, holding demand constant at D0.

S0;S1;b

Which action is the Fed most likely to take to curb inflation (decrease AD)?

The Fed will sell securities in the open market

Which of the following is the LEAST liquid?

a Picasso painting

Which of the following will increase aggregate demand?

a decrease in taxes

Quantitative easing refers to the process whereby the Federal Reserve:

buys securities to stimulate the economy.

M1 includes:

cash, demand deposits, and other checkable deposits.

A supply-side economist is advocating reducing income tax rates. She is probably assuming that the economy is at point _____ in the graph.

d

Fiat money:

does not necessarily have any intrinsic value but has been declared by a government to be money

Institutions that acquire funds from savers and then lend those funds to borrowers are called:

financial intermediaries.

In counteracting a negative supply shock, the Fed could achieve ______ by using ______ monetary policy.

full employment but not price stability; expansionary

Monetary policy involves all of these EXCEPT:

increase in personal taxes

Assume that the reserve requirement is 20% and the Federal Open Market Committee buys a $100,000 bond. The money supply:

increases by a maximum of $500,000

A lower reserve requirement:

increases the ability of banks to make loans.

_____ occurs when a central bank sets a target inflation rate and adjusts monetary policy to keep inflation within that range.

inflation targeting

Money:

is anything that is accepted in exchange for other goods and services or for payment of debt

M2 is _____ in dollar value than M1; it also contains _____ assets.

larger; less liquid

Rising productivity will increase economic growth and raise the average standard of living, shifting the _____ curve to the _____.

long-run aggregate supply; right

Generally, economists believe that monetary policy should focus on price stability in the _____ run and output or income in the _____ run.

long; short

In a liquidity trap:

monetary policy is ineffective in changing income and output.

The main tool of monetary policy is:

open market operations

Tight monetary policy refers to the Federal Reserve:

raising interest rates (usually to fight inflation)

Financial institutions:

reduce information costs, reduce transaction costs, and diversify assets.

Which of the following is an example of contractionary fiscal policy?

reducing military spending

A reduction in the interest rate causes consumption and investment to _____, which shifts the aggregate demand curve _____.

rise; rightward

When the Fed wants to decrease the money supply, it will:

sell bonds

If the Fed wants to raise the interest rate, it will ______ bonds, which ________ bond prices.

sells; lowers

If there is a general rise in fear of the financial system:

the actual multiplier will fall

_____ is the amount by which annual tax revenues exceed government expenditures.

the budget surplus

When the long-run aggregate supply curve is drawn as a vertical line, the theorist is assuming that:

the economy tends to full employment in the long run.

If an expansionary policy pushes output beyond the full employment level of GDP:

the short-run aggregate supply curve will shift to the left

In the equation of exchange, if M = $2 trillion, P = 1.5, and Q = $8 trillion:

the velocity of money (V) = 4.

The graph shows the supply and demand for loanable funds. If the market interest rate is 3%:

there will be an excess supply of funds

What are the primary functions of money?

unit of account, medium of exchange, store of value

Using the equation of exchange, if the money supply is $4 trillion, the price level is 2, and the level of output (real GDP) is $6 trillion, then the velocity of money is ___.

3

In the equation of exchange, if M = $1.5 trillion, V = 7, and P = 1.05, then:

Q= 10 trillion

The use of money as a medium of exchange helps reduce the inefficiencies inherent in:

a barter economy

If a government collects $1,400 in tax revenue and spends $1,600, it has:

a deficit of $200

Which is NOT one of the three basic functions of money?

a means to collect taxes

In times of economic downturn the Fed will engage in ____ monetary policy by ____ bonds.

expansionary;buying

If the economy is at short-run equilibrium point b because of a negative supply shock, the Federal Reserve could enact an expansionary monetary policy, thus shifting the new equilibrium to point _____. As a result of this, the price level would _____ and real output would _____.

c; further increase; increase

In the short run, changes in the money supply will NOT change output according to:

classical economists.

The best discretionary fiscal policy option is:

expansionary fiscal policy that leads to full employment

The financial panic and credit freeze in late 2008 pointed to the Fed's important role as a:

lender of last resort

All of these are considered monetary policy lags EXCEPT:

speculation lags

Automatic stabilizers are designed so that as income falls:

spending does not fall as much as income